Brokerages expect Titan Co. Ltd.’s sales to rise further, aided by pent-up demand for gold and studded jewellery.
India's largest branded jewellery maker reported higher sales and an expansion in margins across all its divisions—jewellery, watches and wearables as well as eyecare—in the quarter ended June.
Overall revenue of the owner of Tanishq and Fastrack brands rose 21% over the previous quarter to Rs 9,443 crore in April-June 2022. Its margin expanded to 12.7% from 10.2%.
Still, the earnings missed the consensus estimate of analysts tracked by Bloomberg.
“Despite challenging macro environment, the outlook for the remaining quarters looks positive and we continue to execute our investment plans in India as well as chosen international geographies,” said CK Venkataraman, managing director at the company.
Brokerages, however, highlighted Titan’s steep valuation as a concern.
Shares of the company rose as much as 1.73% after open but were trading 0.45% higher as of 11 a.m. on Monday. Of the 33 analysts tracking Titan, 23 have a ‘buy’ rating, five suggest a ‘hold’, and three recommend a ‘sell’, according to Bloomberg data. The 12-month consensus price target implies a 7.5% upside.
Here’s what brokerages have to say about Titan’s Q1 FY23 performance.
Jefferies
Retains ‘hold’ with a target price of Rs 2,300, implying a potential downside of 5%.
While a low base drove an exaggerated growth in revenue YoY, the three-year CAGR also came at strong double-digits, a key positive in Q1 results.
The management continues to focus on growth, underpinned by store expansion and new launches across format; hence Titan remains a structural growth story, but current high valuations is a cause of concern.
Q2 may see margin benefits of inventory gains due to customs duty hike.
Dolat Capital
Downgrades to ‘accumulate’ with a target price of Rs 2,700, implying a potential upside of 11%. That follows a recent surge in stock price.
It continues to maintain positive bias on the stock and any correction in stock price would be seen as an opportunity to ‘buy’.
Jewellery business reported strong recovery and we remain optimistic on its long-term sales growth.
Titan would continue to gain market share from unorganised players and within organised space with attractive offerings.
Highest ever sales recorded in watch and eyewear division and margin improvement in watches to 13.1% was an encouraging performance.
Edelweiss
Maintains ‘buy’ with a target price of Rs 3,119, implying a potential upside of 28%.
Factoring in the beat in jewellery margin, it raises FY23E EPS by 4%.
The long-term prospects backed by changing consumer behaviour in favour of larger discretionary spending has set the stage for healthy growth in the retail space over the next five years and Titan would be a key beneficiary.
The jewellery segment is seasonal with respect to marriage season and festivals. Additionally, the number of wedding dates vary in a year. This could impact the company’s revenue.
Poor macro-outlook could lead to prolonged slowdown in the company’s growth as its revenue depend on discretionary spend.
ICICI Securities
Downgrades to ‘add’ with a target price of Rs 2,433, implying a potential upside of 10.9%.
Jewellery hallmarking will likely create a level-playing field, driving formalisation.
Key risks: Sustained weakness or worsening of macro environment can lead to some slowdown, which is not being factored. Irrational competitive environment and potential shift to fixed making charges could limit long-term benefits from operating leverage.
Analysts’ optimism stays intact.
Motilal Oswal
Maintains ‘buy’ with a target price of Rs 2,670, implying a potential upside of 10%.
Gold prices have remained stable and that there has been no adverse impact on jewellery demand so far. This was contrary to our fears that the hike in gold import duty on July 1 will increase domestic gold prices and therefore affect demand. As a result, there has only been a minor correction in our FY23 operating profit forecast, despite the miss in Q1.
Titan can achieve its ambitious growth target (of 2.5x) for the jewellery business (89% of FY22 sales) over the next five years.
Sales grew in July, albeit at a sluggish pace in low-ticket items, whereas the momentum in high ticket items remained strong. Demand for lower ticket items is expected to improve, given the festive occasions in August 2022.
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